Four big risks in your retirement

The sharp increase in pension withdrawals has sparked concerns that some savers may be at risk of running out of money later in life.

The overall value of money withdrawn from pension funds rose to £70.88 billion in 2024/25, according to the latest annual pension income data from the Financial Conduct Authority, up from £52.15 billion in 2023/24 – an increase of 35.9%.

Andrew King, pensions specialist at wealth management firm Evelyn Partners, said: “You might expect there to be a year-on-year increase in the amount taken from defined contribution pension funds as the population ages and more people each year reach retirement, or at least the point where they want to access their pension funds.

“However, the 36% increase from 2023/24 to 2024/25 is much greater than the increase seen in previous years. For example, the amount taken in 2023/24 was 20.6% higher than in 2022/23. This spike in pension withdrawals appears to be driven by several factors beyond demographic and structural.

“Firstly, there is concern among savers over the Labor government’s intention to tax pensions once they come to power in July 2024. Second, the measure announced in the October 2024 Budget is to bring unspent pension assets into the ambit of inheritance tax from April 2027.”

There were also fears that the Chancellor would announce further changes to pensions taxation at last November’s Budget, although fortunately this proved to be unfounded.

Separate HMRC data published in the summer of 2024 showed that seven in 10 people receiving flexible payments from their pension were aged under 65.

Alice Guy, head of pensions and savings at Interactive Investors, said: “The increase in the State Pension age means people often have a gap between stopping work, perhaps working part-time, and receiving the State Pension. We’re sad to see many people in their mid-sixties struggling to make ends meet before they receive the State Pension. This means many older workers face a major dilemma, often having to focus on immediate needs versus long-term financial goals.”

Worryingly, thousands of pension withdrawals were made without anyone seeking financial advice. Those thinking about withdrawing from their pension funds need to be aware of the significant financial risks they face in doing so.

Stephen Lowe, group communications director at Just Group, said: “We really don’t know how many people understand the long-term consequences of taking their first flexible payment. So there is one simple piece of advice for anyone considering taking part in their pension – seek professional, regulated advice, or take advantage of the free, independent and impartial pension guidance from government-backed Pension Wise.”